By Lynda Williamson

In these days of austerity and stagnation many people might be surprised to learn that there is one area of the economy that has enjoyed double digit growth in every year since the banking crisis hit.

The demand for luxury goods has never been greater; it seems that the world’s billionaires just can’t get enough champagne, caviar, luxury yachts and sports cars.

In 2012 the world’s 100 richest billionaires had a net income of 240 billion dollars, enough to eradicate global poverty four times over, prompting Jeremy Hobbs, Executive Director of Oxfam International to say “We can no longer pretend that the creation of wealth for a few will inevitably benefit the many – too often the reverse is true.  Concentration of resources in the hands of the top one per cent depresses economic activity and makes life harder for everyone else – particularly those at the bottom of the economic ladder.”

It would seem then, that rather than starting up new businesses which provide jobs and prosperity to the masses, those strivers whom we count upon to produce the trickle-down effect have been splashing out on luxury playthings and stashing the change in offshore bank accounts (with some worthy and notable exceptions).  Perhaps it’s time to admit that the trickle down theorists forgot to take human nature into account.

Many of those who do start up profitable businesses and indeed list very healthy profits, rely on the tax payer to top up the wages of their poorly paid workforce in the form of welfare payments.  It seems a strange notion that the tax payer should subsidise profitable business at this time when we are having a debate around the undeserving poor and cutting payments to the sick and elderly.

Should businesses which post a profit pay their workforce a wage which they are able to live on without recourse to welfare?  Of course they should, there should be no such thing as ‘working poverty’ in today’s Scotland.

In the UK, the average total pay for executives of blue chip companies is £4 million. This puts the UK’s top executives amongst the highest paid in the world, higher even than in the USA.  Despite this we are constantly told that if we do not offer the highest wages, then the most talented people will move elsewhere. One has to wonder to where exactly.

In Germany, for instance, the gap between rich and poor is half what it is in the UK but they don’t seem to be struggling unduly with lack of talent.  Most disturbing is the fact that these soaring rates of pay don’t seem to have any basis in merit.

Many political commentators believe that we cannot afford to tackle the problem of inequality at this time of crisis when we are reliant on economic growth to lift our stagnant economies.  Much of our attention of late, has instead been focussed on eradicating poverty.

The case for tackling poverty is well known and has been well established for many years.  It has been widely accepted that we must encourage business in order to generate wealth to enable us to do something about poverty. 

I would argue that poverty and extreme wealth are different sides of the same coin, they are interlinked, you cannot solve one without tackling the other.  Increasingly now, we are realising that we cannot afford not to tackle the problem of wealth inequality as it is actually harmful to economic growth.  Put simply, there is a limit to how much money one person can spend.  Spread that money around and much more of it will find its way into the economy.  More equal countries are seen to be more successful in tackling poverty.

Extreme wealth also has a corrosive effect on social mobility with poor people who live in unequal societies far more likely to stay poor.  As Richard Wilkinson, co-author of “The Spirit Level” said “The American dream is more real in Sweden than it has ever been in the States.” 

People in the richer brackets have less of a stake in public services. When you use private health care and send your children to private schools where is the incentive to ensure that public services are properly funded and properly run?  Couple this with the fact that these wealthier people are far more likely to be in positions of power or to gain political office or influence and the danger of a detrimental effect on democracy is all too obvious.  Around 70% of the MPs who sit in the House of Commons are millionaires compared with less than 1% of the general population.  The UK Conservative Party receives over half of its donations from the financial services industry.

Inequality also throws up environmental concerns.  It is estimated that those in the richest 1%  in the United States generate as much as 10,000 times more carbon than the average US citizen.  Increasing pressure on resources like land and water mean that we can no longer sustain a situation where the majority of the world’s assets are monopolised by the few.  As Gandhi so eloquently put it “Earth provides enough to satisfy every man’s needs, but not every man’s greed.”

In Scotland we have an opportunity to choose the kind of country that we want to live in.  I hope it will be a country of social justice, of economic justice and of peace. Tackling inequality will be crucial to achieving these goals.

Inequality has been shown to affect mental health, physical health, life expectancy, levels of drug and alcohol abuse, crime levels, rates of teenage pregnancy and rates of stress related illness.  The list goes on and is even more startling when you realise that inequality is bad for the rich as well as the poor.

Richer people who live in more equal societies are happier and healthier than their counterparts in unequal societies.  In its report ‘The cost of inequality: how wealth and income extremes hurt us all’, Oxfam calls for a return to income inequality levels of 1990 by 2025.

Wouldn’t it be great if an independent Scotland could lead the way in achieving that goal?

Comments  

 
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Mad Jock McMad
2013-01-26 11:24

The economic world runs on the basis there is never enough to go round so divides the world into sharks and carp. The carp are the vast percentage of humans on this planet in the neoliberal theorists eyes, they are the bottom feeders whose sole purpose is to feed the sharks. What sharks hate more than anything is dolphins because they can kill sharks. Yet when dolphins get together they are unstopable, they can change things because they understand that to have enough means working together, sharing and co-operating. The carp are not ‘scarce food’ but an equally valued part of the environment that is needed to thrive for the overall health of all participants – including the sharks. Dolphins are in modern political terms ‘social democrats’. They understand the equal importance of sharks and carp in their world and the need for balance and cooperation between all three parties.

Swim with the dolphins or be eaten by sharks?
 
 
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Breeks
2013-01-26 12:29

There’s another dimension here too… When wealth is static, and the priviledge has been inherited.

There should be greater distinction made between people who generate great wealth through their own industry, and those who merely ‘recycle’ their own wealth through share dividends from companies they invest in.

It results in large volumes of wealth being static, when in idealogical terms at least, wealth should be the reward for success, not merely the priviledge of being born wealthy.

If money is the blood supply of our industry, we currently have high chloresterol, and too many clogged arteries and embolisms restricting our circulation. We need a leaner and fitter economy where wealth and it’s distribution is a much more dynamic commodity.
 
 
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bringiton
2013-01-26 13:30

Do you agree that we should reject the Thatcherite policies being followed at Westminster by Labour and the Tories ?
Yes or No
 
 
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Dundonian West
2013-01-26 13:34

YES.
 

 
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robbo
2013-01-26 14:47

It would seem then, that rather than starting up new businesses which provide jobs and prosperity to the masses, those strivers whom we count upon to produce the trickle-down effect have been splashing out on luxury playthings and stashing the change in offshore bank accounts (with some worthy and notable exceptions). Perhaps it’s time to admit that the trickle down theorists forgot to take human nature into account.

Guess what? Luxury plaything makers are companies too, they hire people and buy parts and tools off of other companies. These workers take their money home and buy things themselves. This is what trickle down is.

There is nothing wrong with a large wealth divide, PROVIDED it is the result of a level playing field. Wealth is not a zero sum game, and it can only be earned by providing value to others. Unfortunately central banks and fiat currencies around the world, have destroyed this level playing field.
 
 
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Angry_Weegie
2013-01-26 18:14

Quoting robbo:

Guess what? Luxury plaything makers are companies too, they hire people and buy parts and tools off of other companies. These workers take their money home and buy things themselves. This is what trickle down is. There is nothing wrong with a large wealth divide, PROVIDED it is the result of a level playing field.



Luxury companies can provide lots of money for the owners, bur not necessarily for their employees, so the employees might not have much money to spend. In addition, making a single luxury purchase is hardly likely to generate the same benefit to the economy as making 100 basic purchases.

There is no justification for directors getting paid 100 times, maybe even 200 times, what their employees earn and getting rises of 20-30% when employees are restricted to 1%.

 
 
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robbo
2013-01-26 19:07

I should think a luxury car engineer would get a very large amount of money actually. And what is the owner going to spend all that money on? Other good and services which create more jobs.

Quoting Angry_Weegie:

There is no justification for directors getting paid 100 times, maybe even 200 times, what their employees earn and getting rises of 20-30% when employees are restricted to 1%.



Why on EARTH not? If a company think they can provide that level of productivity to the them, they should be able to pay someone what they want.

Free wage setting is crucial to a functioning economy. They tell people what jobs should be pursued. Intervention of them reduces the efficiency of the economy as a whole as it is less capable of correctly allocating human resources. Distort them at your peril.

Remember (A) wealth is not a zero sum game (B) You can only earn a lot of money by adding a lot of value.

 
 
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snowthistle
2013-01-26 20:57

[quote name=”robbo”]I should think a luxury car engineer would get a very large amount of money actually. And what is the owner going to spend all that money on? Other good and services which create more jobs.

I think that is the problem, the super rich are not spending in a way that benefits the economy. if the money was more evenly spread it would have a more beneficial effect on the economy.


Free wage setting is crucial to a functioning economy. They tell people what jobs should be pursued. Intervention of them reduces the efficiency of the economy as a whole as it is less capable of correctly allocating human resources. Distort them at your peril.


..but welfare payments to the working poor (and there should be no such thing) do distort wage setting. We don’t have free wage setting we have tax payers subsidising profitable businesses to enable them to pay inadequate wages and make huge profit at the expense of everyone else.
 
 
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robbo
2013-01-26 21:49

Quoting snowthistle:

I think that is the problem, the super rich are not spending in a way that benefits the economy. if the money was more evenly spread it would have a more beneficial effect on the economy.



If they spend it creates jobs. If they save, they put it in banks, banks lend that money and create capital projects which boosts the economy.

Quote:

but welfare payments to the working poor (and there should be no such thing) do distort wage setting. We don’t have free wage setting we have tax payers subsidising profitable businesses to enable them to pay inadequate wages and make huge profit at the expense of everyone else.



Wow there’s a lot of economic fallacies in here. Too many for this short post. All i will say is that there are more and less and even un distortive ways of raising tax and paying benefits. We are currently using very few of the “less/un” ones.

 

 
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Ped
2013-01-26 23:46

Quoting robbo:

I should think a luxury car engineer would get a very large amount of money actually. And what is the owner going to spend all that money on? Other good and services which create more jobs.


That may be true, I wouldnt know. However, the guy who works for the company who valets the luxury car gets paid minimum wage and qualifies for state benefits. So even when getting the luxury car cleaned, the rich guy is subsidised and that runs through society. From The place he buys his messages to the petrol station where he fills up and the maintenance of roads he drives on. Low wages are subsidised by the state. Trickle down is a nonsense argument.

 
 
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robbo
2013-01-27 14:10

Quoting Ped:

That may be true, I wouldnt know. However, the guy who works for the company who valets the luxury car gets paid minimum wage and qualifies for state benefits. So even when getting the luxury car cleaned, the rich guy is subsidised and that runs through society. From The place he buys his messages to the petrol station where he fills up and the maintenance of roads he drives on. Low wages are subsidised by the state. Trickle down is a nonsense argument.



You are completely wrong here. The state is not subsidising the rich guy, it’s subsidising the poor guy.

A company can’t force down wages or offer wages below the market rate, otherwise they won’t be able to hire anyone.

The wage race to the bottom theory is a fallacy, it relies on the false assumption that employers don’t compete for employees.

 

 
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bringiton
2013-01-26 22:54

Not only are the rich not spending in our country but they also “avoid” paying tax earned here by shifting it into offshore tax avoidance havens.
That is the problem with the Anglo American philosophy.
Paying tax,which benefits all in society,is not for the rich but only for those who cannot afford to employ accountants to avoid so doing.
Robbo would probably argue that if we all employed accountants to “avoid” paying tax to the government,we would all be better off.
Who needs government?
Who needs society?
A pretty dismal outlook on life.
 
 
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Angry_Weegie
2013-01-27 00:31

Absolutely correct, bringiton. We have a bunch of directors who are on each others remuneration committees, operating on a “you scratch my salary increase and I’ll scratch yours” basis to inflate their salary way beyond their worth to the business. Then they find ways to avoid paying tax, while, of course, happy to avail themselves of the facilities and services paid for by their employees, and while hiding a lot of their money in tax havens which means that it isn’t available to fund business in this country.

Let’s have no more talk of a free market.
 
 
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robbo
2013-01-27 14:26

Please do not put words in my mouth. It is very disrespectful. I have a degree in economics and am the director of 2 small businesses. I know what i’m talking about.

If you study my posts you’ll notice i am a firm advocate of putting all tax on a land value tax. This is the only non-distortive tax and causes no deadweight loss to society – it’s the perfect way of raising public revenue. It would also completely eliminate the ability to offshore tax payments.

Paying tax rarely benefits society. Please remember that taking money out of the economy in distortive manner, puts the breaks on the economy. That ruins the standard of living for everyone, and causes poverty.

I would also suggest you re-examine the efficacy of big governments vs small goverment. History has spoken on that matter and it’s quite damning. Free humans are far better at innovating and knowing what they want than narcissistic politicians.
 
 
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Angry_Weegie
2013-01-27 17:49

So your view is that no one can innovate unless they are paid vast sums of money and so income tax stifles innovation. Fortunately, this doesn’t seem to be borne out by history.

By the way, in any system of taxation, there will be winners and losers, land tax being no different than any other form in that respect.

And by the way (again), I was a managing director of a small business before retiring, so I suppose I must know what I am talking about too.
 
 
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robbo
2013-01-27 19:30

Quoting Angry_Weegie:

So your view is that no one can innovate unless they are paid vast sums of money and so income tax stifles innovation. Fortunately, this doesn’t seem to be borne out by history.



This is a straw man argument.

People are MORE LIKELY to innovate and be productive if they can keep more (ideally all) of the rewards of their innovation or productivity.

If you don’t think that is borne out by history, then i suggest you compare Soviet Technology with US Technology. Not that history needs to demonstrate this, it’s obvious that the higher the rewards the higher the competition.

As for the land value tax, the only losers will be land speculators. Land speculation creates no wealth for the nation, unlike employment, doing business, selling goods, hence we should not be discouraging the latter’s activity with taxation.

 
 
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Angry_Weegie
2013-01-27 23:34

The point is that the people who make the money are not those who innovate, but those who control the money. Who made money before 2008? And what contribution did they make to society?

You accuse me of raising a straw man argument, but what is your comparison of the Soviet Union and the US. I don’t think that a state that supports their disadvantaged by expecting their ciizens to contribute to the general good has to be like the Soviets.

As for land value tax, the losers are not speculators, but those who have property but little income. As a retiree, I can think of a whole group of people who might fall into that category.

I don’t want to be accused of putting words in your mouth, but this is starting to sound like survival of the fittest, or perhaps the brightest. Innovate or die?
 

 
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Ben Power
2013-01-26 23:22

Thank you for the article. Very thought provoking and the message comes through loud and clear drowning out the neocon stuff that floats around trying to justify plain greed.
I particularly liked the closing question.
“Wouldn’t it be great if an independent Scotland could lead the way in achieving that goal?”,
Yes it would be, and likely to happen if enough Scots vote YES in 2014.
 

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